Answer:
The drawee bank is obligated to make payments according to its customers' orders. It is not required to accept its customers' obligations in exchange for its own. When a check payable to "ABC business" comes to the paying bank through the clearing system the paying bank relies on the depositary bank's warranties when it pays the check. The depositary bank promises that the endorsement of "ABC Business" on the back of the check is good.
When someone presents himself or herself across the counter and says "I'm ABC Business" the paying bank is in no position to verify that claim and is not required to replace its customers check with one of its own. The practice of "trading checks" is a poor one. It generally came about when banks stopped certifying customer checks and has nothing to recommend it to the paying bank.
First published on BankersOnline.com 9/25/06
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